WISH Offers the Most Asymmetrical Opportunity in the Market

Wish (ContextLogic), the e-commerce platform, recently saw its shares rise 37% after an unexpected endorsement from Citron Research, a well-known short-seller.

The short seller noted that the recent success of Temu, a subsidiary of Pinduoduo, in the U.S. market and its features in two Super Bowl ads made him believe that Wish offers the "most asymmetrical opportunity in the market."

The Wish Value

Despite the stock price rise, Wish's intrinsic value is shrinking and not becoming stronger.

The company's revenue growth rates have been moving in the wrong direction and finds it difficult to support a company that is shrinking over time.

On the other hand, Wish has a healthy balance sheet with approximately $800 million in cash and no debt. The company is trading at a value less than the cash on its balance sheet, but it is also burning through a significant amount of free cash flow each quarter.

It is unlikely Wish will be able to stem its cash burn and stabilize its business in the challenging macro environment, and predicts that the company may dilute its shareholders soon to raise capital.

Wish CEO Explain the Truth

Wish's CEO Joe Yan has his work cut out for him on the upcoming earnings call next week. The success of the company will depend on its ability to navigate the challenging macro environment and grow its operations, especially given that it was already struggling to grow before the current market conditions.

WISH's revenue growth rates appear to be decreasing, and as an investor, it's challenging to back a company that's shrinking with time. On the other hand, WISH holds approximately $800 million in cash and equivalents and operates debt-free, trading for less than the cash on its balance sheet. However, the company is also burning through a significant amount of free cash flow each quarter, with $100 million burned in Q3 2022.

Assuming the business were to shut down operations and return capital to shareholders, WISH could be considered cheap, but this is not a likely scenario.

It's estimated that WISH has another 2 years' worth of cash on its balance sheet, but it's unlikely they will wait until the last moment to raise capital. As a result, dilution of shareholders in the near term may occur, especially given the recent run-up in share price.

In this challenging macro environment, it's uncertain how WISH will stabilize its operations, given even its strongest e-commerce peers are struggling to gain traction.

Even when the economy was stronger and market conditions more favorable, WISH was already struggling to grow its operations. Interim CEO Joe Yan will have a difficult task ahead in the company's upcoming earnings call next week.